Both the House and Senate versions of the fiscal 2013 National Defense Authorization Act contain contracting provisions that are out of synch with competitive market forces, according to leaders of the Professional Services Council, a contractor trade group.

Objectionable provisions include those affecting executive pay reimbursements, efforts to steer more work to small businesses and efforts to reduce contract bundling, the leaders said in a Thursday conference call with reporters.

The House bill (H.R. 4310) passed the full chamber on May 18, and the Senate version, S. 3254, cleared the Armed Services Committee on June 4.

A provision in the Senate bill to cap the reimbursement for contractor executive salaries at $237,000, the salary of the vice president, “is misguided and inappropriate,” said Stan Soloway, PSC’s president and chief executive officer. “$237,000 is adequate for the majority of employees, but the human capital markets show a shortage of technical skills the higher up you go.” Putting “arbitrary limits on what you can pay puts a yoke on companies’ ability to attract talent, and the private sector is conduit of talent to the government,” he said.

The council understands that the push to cap executive pay is driven by the existence of a federal pay freeze, Soloway added, but the “emotional” argument that companies are free to pay what they want but not at taxpayer expense is “naïve and convenient and has no basis in reality.” He says no company can afford to overpay its employees or subsidize an expensive employee outside of the contract. “Even Congress can’t repeal the law of supply and demand.”

The government makes some exceptions for the higher pay of engineers and scientists, said Alan Chvotkin, the council’s executive vice president and counsel, adding contractors should maintain a future-oriented workforce with emerging skills such as those in the field of cybersecurity.

The group also faults provisions in the House bill that would raise the Pentagon’s goal of hiring small businesses from 23 percent to 25 percent of total value of prime contracts. Roger Jordan, PSC’s vice president of government relations, said the timing is wrong because “the government does not have big picture data at the subcontracting level, which would show a significant amount of work going to small businesses.” The bill’s provision to reduce the amount of the bundling of contracts that tend to favor large businesses creates too broad a definition and requires more expensive reporting, the council believes.

Chvotkin said the council also opposes a Senate provision to prohibit the Pentagon from awarding noncompetitive, nonfirm-fixed-price contracts for performance of noncommercial services unless the contractor agrees that at least 50 percent of the direct labor on the contract will be performed by the contractor or by subcontractor specifically identified. “It’s an unnecessary overeaction that constrains the competitive environment and constrains what tech companies can bring to the table,” he said. “With subcontractors, you don’t always know the nature” of future work.

The group also opposes as “arbitrary” the Senate bill’s broader effort to achieve savings in the service contractor workforce equal to or greater than savings in funding for military personnel achieved by the planned reduction in military strength contained in the fiscal 2012 budget request. “It’s not smart management any more than arbitrary cuts in the civilian workforce are,” Soloway said. “It would hamstring agencies because you have to see what you need, going in either direction.”

A Senate provision to automatically grant the Defense Contract Audit Agency access to companies’ internal audit reports also worries the contracting industry, Chvotkin said. The underlying data already are available, but the actual reports deal with company management strategy and should be submitted only voluntarily.

Positive elements in the Defense bills, in the council’s view, include procedures requiring that companies reported to have committed contracting crimes first be referred to suspension and debarment offices for review, rather than being denied contracts, as some in the Senate have sought. They also back a House provision to help agencies considering what to contract out through private-public sector competitions by more clearly defining “closely associated with inherently governmental functions” in a way consistent with directives of the Office of Management and Budget.

An overarching problem is the current Congress “looks at challenges in the system piecemeal rather than holistically,” a technique Soloway said, results in solutions to problems that exist only with a limited number of contractors.

“We haven’t had a broad hearing on acquisition in a long time,” he added. “The need to look at things strategically doesn’t get enough time and energy from Capitol Hill and the agencies.”

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